Bank of Korea Revises This Year's Growth Rate Up to -1.1% (Comprehensive)

Despite COVID Resurgence... Consumption Shock < Export Recovery
3.0% Forecast for Next Year... Interest Rates Held Steady

[Asia Economy Reporters Eunbyeol Kim and Sehee Jang] The Bank of Korea has revised its economic growth forecast for this year upward from -1.3% to -1.1%. The growth forecast for next year was also raised from 2.8% to 3.0%. Although the third wave of the COVID-19 pandemic is expected to impact the domestic economy, the recovery in exports and a surprising 1.9% growth in the third quarter were the reasons for the increased growth forecast. The base interest rate was kept unchanged.

The Monetary Policy Committee of the Bank of Korea held a plenary session on the 26th and raised the growth forecasts for this year and next year by 0.2 percentage points each compared to the August forecast. The growth rate for 2022 was presented as 2.5%. Governor Lee Ju-yeol of the Bank of Korea stated, "The domestic economy showed signs of gradual recovery. Private consumption showed a slow recovery due to the impact of the COVID-19 resurgence, and construction investment continued to adjust, but facility investment showed signs of recovery, and exports maintained an improving trend." The Bank of Korea also revised the consumer price inflation rate for this year upward from 0.4% to 0.5%. Inflation for next year was kept at 1%, and for 2022 it was forecasted at 1.5%. The employment situation was evaluated as continuing to be sluggish, with a significant decrease in the number of employed persons.

Governor Lee said, "Going forward, the domestic economy is expected to show a gradual recovery centered on exports and investment, but uncertainty about the growth path remains high."

Meanwhile, the Bank of Korea’s Monetary Policy Committee kept the base interest rate at 0.50% per annum on the day. In the monetary policy direction statement, the committee said, "As the domestic economic recovery is expected to be gradual and demand-side inflationary pressures are expected to remain low, the accommodative monetary policy stance will be maintained." Since liquidity released into the market is flowing into asset markets such as real estate and stocks, no additional rate cuts were made.

Although the Bank of Korea raised its growth forecast, negative growth this year due to the COVID-19 shock has become a reality. Since the Bank of Korea began compiling Gross Domestic Product (GDP) statistics in 1953, the Korean economy has experienced negative growth only twice: in 1980 (-1.6%) during the second oil shock and in 1998 (-5.1%) during the foreign exchange crisis.